Week Ahead in FX: Greek and German Parliaments in Spotlight

The clock is running out on Greece and has prompted the Hellenic nation to return to the negotiation table. After a default to the International Monetary Fund and a referendum that voted “No” on a deal from the Eurogroup brought about desperate measures to intensify capital outflows, Greek Prime Minister Alexis Tsipras offered similar terms to those asked by creditors last Thursday. Over the weekend Eurogroup Finance Ministers went through the document and after adding demands are giving Greece 72 hours to vote the agreement into law before releasing the bailout funds.

The European Central Bank will publish its rate statement on Thursday, but few reporters will ask about the rate announcement, which is expected to be held with no change, but rather question President Mario Draghi on the outcome of the Greek debt deal.

On Wednesday, the central banks of Canada and Japan are set to take center stage. The market is expecting rates to be held steady from both, but expect the rhetoric from policy makers to provide guidance.

Federal Reserve Chair Janet Yellen will testify in front of committees from the House of Commons and the Senate this week. Her words will be closely followed as the U.S. rate hike that was predicted by September is becoming more unlikely as the economy has not shown signs of shaking off the first quarter malaise.

The price of goods and services in the United Kingdom has remained close to zero since January of 2015. Deflation fears were reduced after prices posted a 0.1 percent gain in June, with a similar rise expected in July. On Tuesday, July 14 at 4:30am EDT the Office for National Statistics (ONS) will release the year over year rise in inflation. Later in the day the Bank of England (BoE) policy makers will testify before the U.K’s Parliament’s Treasury Committee with Governor Mark Carney taking the stage at 7:45 am EDT to present the Financial Stability Report.

The BoE held rates at record low 0.5 percent last week as expected. With low inflation and strong growth the central bank can afford to wait, but it is expected that inflation will rise towards the end of the year when talk of a rate hike will again circle the Old Lady. The BoE will publish its next inflation outlook on August 6. The GBP/USD has been boosted after escaping deflation and with mixed data yet steady GDP growth. Taking into account the lingering effects of the first quarter in the United States, the still unresolved Greek crisis in Europe and China’s struggles with capital markets its no surprise the U.K. economy would be favoured by investors. The Bank of England is already starting to rift internally about a rate hike, which if growth remains at current pace could come early in 2016.

Bank of Canada Under Pressure to Cut Rates

Canadian employment eased in June with a loss of 6,400 jobs and a slight improvement on the unemployment rate. to 6.8 percent. The forecast called for a fall of 9,000 sot it was a slight improvement on expectations. The Bank of Canada has tried to be proactive in 2015 and cut the benchmark rate in January, but after the economy has not able to turn around and another rate cut is expected before the end of the year.

The USD/CAD has risen due to a stronger dollar and weaker commodities. The CAD is getting little support from oil prices that are kept under pressure by the potential outcome of a nuclear deal with Iran. Gold has been caught in a range that is dictated by safe haven appetites that flared up after Greece and China. A rate cut later in the year will further depreciate the loonie, although forecasts from a Federal Reserve hike have been pushed back towards the end of the year which limit the potential size of interest rate divergence. Economic indicators in Canada have not picked up enough and without the Fed rate hike in the immediate horizon Governor Stephen Poloz might once again be forced to act. A rate cut is not expected this week, but the comments from Poloz following the rate announcement will provide hints on how soon a change in the benchmark rate could come.

European Central Bank to Face Press After Greek Deadline

European Central Bank Chief Mario Draghi will faced a throng of reporters after the rate announcement. The European benchmark rate is expected to remain unchanged but all eyes would be on the ECB and its plans after the outcome of the Greek deal deadline a few hours prior. Optimism on Greek related events has been punished time and time again, but this time with the clock winding down and Grexit in full view it is expected a deal will be reached. A deal that will have major consequences for Greek financial institutions and will be for the ECB to outline what the next steps are going forward.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.

MarketPulse is a forex, commodities, and global indices analysis, and forex news site providing timely and accurate information on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

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